(Newswire.net — March 15, 2022) — Most people are scared of bankruptcy, but sometimes it’s the best option if you are hopelessly behind on your debts. Keep reading to find out if filing Chapter 7 could be a solution.
Chapter 7 Bankruptcy Overview
Chapter 7 is a powerful tool in the US that has helped millions of people overcome all kinds of debt, including credit cards, medical debt, car loans, and more. It’s estimated that about 40 million Americans have filed at some point in their lives.
You may wish to explore bankruptcy protection if you are unable to pay the minimum monthly debt payments.
Typically, people file a chapter 7 case for the purpose of eliminating unsecured debt. That includes: personal loans, credit card debt, and medical debt. The person filing (debtor) may eliminate mortgage debt and surrender their house. A debtor may also surrender their vehicle and eliminate their automobile financing debt.
Generally, a debtor would not file a chapter 7 case if there is a possibility of losing their car or house. A person that is keeping a house and/or car must keep current with their monthly payments.
Certain types of debt may not be eliminated, such as: some tax debt, child support, and spousal support.
How Chapter 7 Bankruptcy Works
After filing, the process takes about four months to complete.
A bankruptcy petition is prepared that includes all debts, creditors, household income and expenses, and various additional information about one’s financial affairs. The debtor must review and sign the petition.
Prior to filing the petition with the court, the debtor must complete a type of credit counseling that is tailored for bankruptcy. The proof of completion of the credit counseling must be filed with the court, together with the petition.
The case is assigned to a trustee, who administers the case. The trustee’s tasks are to confirm that the debtor meets the criteria for a discharge (elimination) of debt and whether the debtor owns property with a substantial value that may be sold. The ability of the trustee to sell property is very unusual in numerous states.
The debtor provides the trustee with numerous documents, such as: tax returns, bank statements, pay stubs, investment accounts, and a real estate valuation. The trustee reviews the petition and documents.
A hearing is scheduled about one month after the filing. The trustee, the debtor, and the debtor’s attorney attend the hearing. A creditor’s appearance at the hearing is very unlikely. The trustee asks the debtor questions for about ten minutes.
The debtor must complete another course pertaining to financial management.
If the trustee is satisfied, she will file a recommendation for a discharge that will be entered as an order by the judge. Assuming there are no trustee and/or creditor issues, the debtor is granted a discharge of his debts.
Keeping Property After Chapter 7 Bankruptcy
A trustee may only sell a debtor’s personal property or real estate if the property is not totally exempt. The bankruptcy code lists the amount of the exemptions that are available for each type of property. All states have their own exemptions. Each state determines if a debtor may use the bankruptcy exemptions or only the state’s exemptions. If the amount of the exemption for a particular property exceeds the property’s value, the trustee cannot sell the property.
If a debtor is current with his mortgage payments and the trustee cannot sell the house, the debtor may keep the house. However, if the debtor is behind with mortgage payments, ultimately the mortgage company will be permitted to take the house through a foreclosure action. If a debtor is behind with automobile finance payments, the finance company will be permitted to repossess the vehicle.
Do I Qualify For Chapter 7?
With the exception of the exemption issues, generally, the main criteria is that the debtor’s monthly household income is less than the debtor’s household’s reasonable, but necessary expenses needed to live. The income and expense criteria are separated into two parts. The first part is referred to as the “Means Test,” Current Monthly Income,” and “CMI.” The second part compares projected future income and expenses.
Typically, the “Means Test” compares the debtor’s household’s gross (before deductions) income, for the six months prior to the filing, to the average gross income of the same size house, in the state where the debtor files his case. If the debtor’s household’s income is less than the state’s average, the criteria is met.
If not, initially, the criteria is not satisfied. However, the criteria may still be satisfied, if the debtor’s household’s average monthly take home income for the six month period is less than the IRS’s allowable expenses for necessities. If the net monthly income is more than the expenses, the criteria is still not met.
To satisfy the second part of the analysis, the debtor’s household’s projected future income must be less than the projected future reasonable expenses for necessities. If such income exceeds said expenses, the debtor will not meet the criteria.
Please note that there are a number of exceptions.
Should You File For Chapter 7 Protection?
You could be a candidate to file in these circumstances:
- You do not own real estate with a substantial amount of equity
- You do not own any personal property with substantial value
- You and your household income is less than the monthly costs for necessaries
- You are unable to continue to pay any creditor on a monthly basis
- You want to stop a lawsuit, levy, wage garnishment, or utility termination.
If you are considering filing for Chapter 7 bankruptcy, talk to a bankruptcy attorney today to take the next step.